This past trading day was another one of consolidation, and the safe haven dollar would certainly oblige the underlying churn. Yet, congestion can proveconstructive if it leads to a meaningful drive later on. Technical traders can point out the periods of chop and tight ranges pretty easily – the picture on the chart is rather straightforward, but there is a fundamental reason to this period of indecision as well. Either there is little pressure building behind both sides of the market (bulls and bears) and it thereby balances, or there is a lot of interest on both sides but the strength is subsequently offsetting. Finding equilibrium in a single market under heavy open interest is difficult enough, much less for the broader capital markets. What we are facing is a low participation chop. Fresh blood is holding to the sidelines until it is clear that there is another market-wide run that they can draw capital gains from or a wholesale unwinding that they need to keep up with.

This is the situation the entire market faces, and the dollar is standing as the last-resort safe haven in the middle of it. Looking at the Dow Jones FXCM Dollar, we see that the currency is consolidating within a week-long range with a mid-point near 10,000. Yet, this anchor happens is just around 100 points away from the range resistance that has held the currency back from charging to highs last seen in January 2011 and possibly reviving a still-shapeless bull trend. What we need is that critical breakout and the fundamental drive needed to keep it moving (preferably, the latter instigating the former). There is little on the immediate docket that could promise the thematic level of influence. In the meantime, we were offered updates on the housing sector and Fed Chairman Bernanke’s opinions this past session. Existing home sales slipped 0.9 percent, but nevertheless kept the measure near a two-year high while the median price posted its first year-over-year increase in 15 months. It is a long road to a full housing recovery, but it is looking more and more like a floor is in place for the United States’ biggest fundamental anchor. As for Bernanke, he voiced support of a strong dollar and said it was an encouraging sign that there are no AIG’s now.

The market doesn’t usually react to comments made by economists or analysts, but there was a notable euro reaction Tuesday to Citi’s Chief Economist when he sounded the alarm on Spain and its troubled housing sector. Spanish bonds were notably underperforming with yields on the 10-year government bond posting its biggest jump in two months to hit a five-week high. There are plenty of loose ends for the Euro Zone that are on fire, but they are not immediate threats to stability. Another concern to monitor: Ireland is scheduled to make a €3.1 billion payment on its €31 bank bailout from three years ago by March 30. Irish officials are trying to win a deferment on that payment. In the upcoming trading session, the German and Euro Zone growth figures for March will offer a good, timely growth update – and possibly volatility.

New Zealand Dollar Tumbles after 4Q GDP Figures Fall Short of Expectations

The New Zealand economy grew at half the pace expected through the final three months and the annual figure leveled off. According to Statistics New Zealand, thecountry grew 0.3 percentagainst a market consensus of 0.6 percent growth. Though that doesn’t necessarily turn any corners for recession talk, the market was clearly positioning for a specific outcome because the immediate reaction to the disappointing news was an across-the-board selloff. The slide hasn’t necessarily secured its own trend (it’s difficult to run astray from risk trends even when they are flat), but the kiwi hasn’t recovered much of that lost ground. With the weak Chinese data, this slide could end up permanent.

There was a lot of ambiguous event risk behind the sterling Wednesday, but the masses had a pretty good idea for what would come of the two key events. For the budget presentation to Parliament, we saw a lot of the changes that were expected, met. The top tax rate was eased back from 50 percent, the corporate tax rate will be lowered to 24 percent and the stamp duty on homes over £2 million was raised to 7 percent. Perhaps most surprising was the 0.8 percent growth forecast for 2012. The other event was the BoE minutes. Two voters (Posen and Miles) called for another £25 billion in bonds but the majority said the watch must continue on medium-term inflation.

Australian Dollar Stumbles on Weak Chinese Manufacturing Report

There was a little event risk to start the Australian dollar off Wednesday morning, but its influence was tepid. The real market mover was a release from another country’s docket: the flash Chinese Manufacturing activity report for May from HSBC. A 48.1 reading marks the fifth consecutive contraction (anything below a 50 read) in factory activity. This is a damper on collective global growth expectations but it carries more weight with the Aussie dollar than most other trade partners. The manufacturing sector (China’s largest) requires raw materials and energy products to run – goods Australia provides much of. So, when this important consumer of Aussie exports fades,the currency takes a hit.

Japanese Yen: Trade Balance Posts Unexpected Surplus Following Record Deficit

What a dramatic reversal in trade figures. In January, the country reported a record 1.477 trillion yen deficit – a strong argument for those that want to make the case that a high yen is choking the economy. Yet, this morning we learn that February sawa return to surplus(32.9 billion yen). While his isn’t too surprising as the forecast was for a 120 billion deficit, the fundamental shift is clear. The yen itself looks primed and ready for a natural correction after its aggressive selloff these past few months, but it needs a real driver. A risk aversion move that encourages carry unwind could certainly accomplish that - but we need that break first…

There was no progress made for gold this past session. The high and lows of Wednesday’s range fit within the highs and lows of the previous session. Progress has clearly bled off with volatility and volume figures seconding the temperance. The CBOE’s gold volatility reading is dragging its belly along eight-month lows while futures volume from the past session was at a multi-week low. This could prove a contraction before a breakout, but like the traditional risk assets, we need a catalyst. Look to the dollar to lead the metal.

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